privileges, Federal mortgage guarantees, and 
The Merchant Marine Act of 1970 did not insti- 
tute any truly fundamental changes in U.S. maritime 
policy, but it did include numerous major program 
changes that were intended to completely modernize 
Federal maritime assistance programs. These changes 
emerged after months of study by the Administration 
and after extensive hearings before the Congress. 
The changes were based on a synoptic review of 
existing Government maritime policies and pro- 
grams. Hence, ithe 1970 Act, while not a new policy 
initiative, constituted a comprehensive refinement of 
Federal maritime assistance activities. Many of the 
program changes adopted in 1970 remain intact, 
and, in the paragraphs below, the most important of 
the changes implemented will be briefly discussed. 
In seeking ways to revitalize the declining U.S. 
merchant marine, a common view emerged early in 
the process that, regardless of the specific types of 
Government aid used to support the revitalization 
effort, an essential ingredient required for success 
would be a firm and explicit long-term Government 
commitment to the task. As a consequence, when 
the 1970 Act was passed, it included a specific 
pledge of Government support for a 10-year, 300- 
ship construction program to be undertaken with 
Government-provided construction-differential sub- 
sidies. This commitment, which was incorporated in 
Section 209 of the Merchant Marine Act, included 
authorization to appropriate funds needed to achieve 
this construction objective. The basic purpose of this 
commitment was to encourage investment in and 
modernization of U.S. shipbuilding facilities in order 
to improve U.S. shipbuilding productivity and there- 
by reduce U.S.-foreign construction cost differentials 
and subsidy dependence. 
Another construction-related initiative incorpor- 
ated in the 1970 Act was the authorization it pro- 
vided to grant construction-differential subsidies 
(CDS) directly to shipyards rather than limiting 
CDS eligibility to ship purchasers only. This change 
was designed to encourage greater shipyard partici- 
pation in vessel design. It was felt that shipyards 
would be able to influence designs in ways that 
would ease construction, lower building costs, and 
increase shipyard productivity. 
Negotiated contracting between shipyard and 
purchaser, as an alternative to competitive bidding, 
was also authorized under the 1970 Act insofar as 
certain conditions could be met. Fhe negotiated con- 
tract procedures were included to help reduce ship- 
building costs by eliminating expenses associated 
with bid preparation and as a means of encouraging 
shipyards to develop and market standard vessel de- 
signs. To take advantage of the negotiated contract- 
ing procedure, the purchaser and builder were re- 
quired to submit backup cost data to demonstrate 
the reasonableness of the price; the Secretary of Com- 
merce was required to determine that the price was 
fair and reasonable; and the shipyard was required 
to agree to be audited by the U.S. Comptroller Gen- 
eral. As an additional requirement, the Act specified 
special declining construction-differential subsidy 
rate ceilings which could not be exceeded in conjun- 
tion with any negotiated CDS contract. 
Declining CDS rates (which were the same as 
those imposed as a condition of negotiated procure- 
ment) were also specified as objectives for all CDS 
awards regardless of the type of contracting pro- 
cedure used. These goals called for a maximum 
CDS rate of 45 percent in fiscal year 1971 and a 
reduction of this ceiling by 2 percentage points in 
each subsequent fiscal year until a level of 35 per- 
cent was achieved for fiscal year 1976. After 1976 
the 35 percent CDS ceiling objective was to be re- 
tained. If at any time it was determined that these 
specific annual objectives could not be met, the 
Secretary of Commerce was authorized to negotiate 
with bidders in an effort to come as close to the 
objectives for the period as possible. Hence, while 
the CDS rate objectives embodied in the 1970 Act 
constituted legal requirements for the purposes of 
negotiated procurement, these ceiling rates were ob- 
jectives with respect to CDS paid in conjunction with 
competitive procurement. Nonetheless, the 1970 Act 
made it clear that these goals were to be actively 
pursued for all CDS contracts. 
To encourage the construction and operation of 
badly needed bulk carriers, the Merchant Marine Act 
of 1970 included a number of provisions which were 
specifically aimed at aiding the bulk segment of the 
U.S. merchant fleet. Although the construction sub- 
sidy provisions of the Merchant Marine Act of 1936 
had been revised in 1952 to authorize CDS for bulk 
carriers, by 1970 no bulk vessels had been built un- 
der these provisions. Consequently, further changes 
were enacted in 1970 to provide additional govern- 
ment encouragement for bulk fleet expansion. 
Among the bulk shipping provisions of the Act, 
the one which implemented the most fundamental 
change was the provision extending operating-differ- 
ential subsidy eligibility to U.S.-built tankers and dry 
bulk carriers. This was the first time such vessels had 
been authorized to receive operating aid. In addition, 
subsidy eligibility restrictions pertaining to U.S. com- 
panies or individuals who also cwned foreign ship- 
ping were liberalized with respect to bulk shipping 
operations in order to allow such owners to sys- 
tematically replace foreign tonnage with new USS. 
capacity. Finally, limits on foreign-to-foreign trading 
were liberalized for subsidized bulkers in recognition 
‘that the nature of the bulk shipping industry was dis- 
tinct from the liner industry. Together with the avail- 
ability of Title XI mortgage guarantees and a 10- 
year Government commitment to fleet expansion, it 
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